Was the bitcoin bust, really a bitcoin boom?

After writing my last post on bitcoins, I entered into numerous debates with various individuals who couldn’t resist bringing up the “bitcoin bust” of 2011.

Which led me to have another look at the data, and draw a staggering conclusion.

The bitcoin bust of 2011 was actually a boom of currency injection.

On the MTGox USD currency market, in the lead up to the price per bitcoin peaking at approx USD$35 per bitcoin, only a total of $22.6 million had actually been injected into the bitcoin economy. I’m talking about transactions from other currencies, into bitcoins, and at this point while only $22.6 million was traded into the bitcoin economy, its market cap was nearer $300 million.

Over the subsequent 6 odd months the price of bitcoins slumped all the way down to a price per bitcoin of $2.14, however the total currency injected into bitcoins over the same period was $59.5 million, which equates to a staggering growth of acceptance and usage of bitcoins. The market cap of bitcoins was less than $20 million, however over $80 million of real cash had been traded into the bitcoin economy.

The usage of bitcoins factually increased by 263% over this period, although the price per coin and market cap continued to decline.

In the period since the slump, a further $200 million of real hard cash has been traded into the bitcoin economy,

It took just $16.9 million to run the price of bitcoins from $1/each to their peak, but it took $59.5 million of further trades to bring them back down to double their starting price, at about $2.14

As of today, $282 million has been traded into the bitcoin economy, and the market cap of bitcoins is extremely similar at about $300 million. In terms of a currency this is a reasonable equilibrium, in terms of a tech stock bitcoins are absurdly undervalued.

There is a massive mathematical flaw/error in this post, but I can’t be bothered fixing it because the main point still remains. The bust was a boom.